Forming a Non-Profit
Forming a Non-Profit 501(c)(3) Federally Tax Exempt Corporation in Pennsylvania to Pursue Environmental or Citizen Activism
Prepared by the Community Environmental Legal Defense Fund (CELDF)
Thomas Alan Linzey, Esq.
Note:
The provision of the materials within this Manual is for informational
purposes only, and should not be deemed to be legal advice.
Organizations are urged to retain legal counsel if they have questions
concerning any aspect of the incorporation and 501(c)(3) process.
Table of Contents
I.
Why Form a 501(c)(3) Corporation?
I(a).
Additional Help Guides Available
II.
Incorporating in Pennsylvania as a Non-Profit Corporation
III.
Post-Incorporation: Choosing a Board of Directors, Drafting Bylaws
IV.
Filing for Federal Tax-Exempt, 501(c)(3) Status
V.
Annual Filing Requirements with the State and Federal Government
VI.
Maintaining Charitable Status as a 501(c)(3)
VII.
Hooking into Pennsylvania's Non-Profit Environmental Network
I. Why Form a 501(c)(3) Corporation?
There
are several main reasons why organizations decide to incorporate and
become 501(c)(3) federally non-profit corporations. These are:
* Limited Liability - when acting as an unincorporated association or
as individuals pursuing a common goal, each person may be individually
liable if sued by another person or organization. By incorporating,
limited liability is conferred, and thus, only the assets of the
corporation can be reached by a suing party.
* Tax Deductible
Donations - after attaining 501(c)(3) status, the organization can
attract donors that wish their donations to be tax deductible. Under
current IRS regulations, donors can deduct an amount up to 50% of their
adjusted gross income on their annual tax return. Corporations may also
deduct up to 10% of their annual taxable income. See IRS Publications
526, 561, and 535.
* Eligibility for Funding - almost all local
and state government agencies; and privately operating foundations
require funded organizations to have 501(c)(3) status. A routine part
of funding applications is a request for an IRS determination letter as
proof that the organization has attained 501(c)(3) status.
*
Other Advantages include (1) ability to use Public Service
Announcements on local radio and television stations; (2) ability to
use discounted space from internet service providers; (3) lower postal
rates on third class bulk mailings, and (4) ability to use interns from
local universities.
The main disadvantages to forming a
501(c)(3) non-profit corporation are: (1) additional paperwork for
maintaining corporate records, tax correspondence, and annual IRS
reports, (2) payment of incorporation costs and fees, and (3) the time
and energy necessary to maintain the corporation.
I(a). Additional Help Guides Available
There
are various in-depth help guides available for determining whether your
organization should establish a 501(c)(3) corporation and the step by
step processes by which to form a non-profit corporation. The most
helpful guides include:
Anthony Mancuso, Esq., How to Form a
Nonprofit Corporation in All 50 States: Qualify for Federal 501(c)(3)
Tax Status, Nolo Press (1993).
[Available on the Barnes and Noble web page - http://www.barnesandnoble.com for around $35.00]
The
IRS also produces several publications to assist organizations that are
seeking to become 501(c)(3) non-profit corporations. These can be
obtained by calling 1-800-TAX-FORM and are offered free of charge:
Publication 557: Tax-Exempt Status for Your Organization
Publication 578: Tax Information for Private Foundations and Foundation Managers
Another
helpful webpage exists at http://www.form1023help.com, which has been
created by a former IRS Tax Exempt Organizations Specialist, to assist
newly formed nonprofit organizations with navigation of the 1023
Application.
II. Incorporation in Pennsylvania as a Non-Profit Corporation
The
first step on the road to attaining status as a federally tax exempt,
501(c)(3) non-profit corporation is to incorporate in Pennsylvania.
Incorporation in Pennsylvania is a fairly simple exercise, and includes
the use of boilerplate articles of incorporation that can be customized
by your organization, filing with the state, and paying a filing fee of
$125.
Note: If the organization will be applying for federal
tax-exempt recognition under section 501(c)(3) of the Tax Code, you
should call the IRS at 1-800-TAX-FORM prior to incorporating at the
state level (calling now will save time later). When calling, you need
to ask the IRS for "Form 1023.” The Form is also downloadable by
accessing the IRS webpage at http://www.irs.gov.
The articles of
incorporation filed by your organization are known as its "charter".
Corporations chartered in Pennsylvania are known as "domestic"
corporations, while corporations chartered outside of Pennsylvania that
are allowed to do business in the state are known as "foreign"
corporations.
The articles of incorporation will begin the
duration of the corporation when they are approved by the state. When
sitting down to draft your articles of incorporation, it would appear
that you have your choice of a "fill in the blank" form provided by the
State, or more extensive articles as given below. DO NOT USE THE FORMS
PROVIDED BY THE STATE. Although it is certainly easier to use the
State's forms, it will cause problems later when the Internal Revenue
Service (IRS) reviews your forms to look for certain language. Many
other nonprofits have been forced to amend these articles in response
to IRS review, thus losing many valuable weeks. It is advised that you
use the boilerplate provided below - which is also the boilerplate used
by the Internal Revenue Service as a suggested format.
There are
two other technical requirements, explained later in this section,
which also must be completed in Pennsylvania in addition to filing the
articles in order to qualify you for incorporation.
Sample Articles of Incorporation
ARTICLES OF INCORPORATION FOR
Middle Spring Watershed Association, Inc.
Articles of Incorporation for Middle Spring Watershed Association, Inc.
Articles
of Incorporation of the undersigned, a majority of whom are citizens of
the United States, desiring to form a non-profit corporation under the
Pennsylvania Non-Profit Corporation Law of 1988, 15 Pa.C.S.A. §5301, do
hereby certify:
ARTICLE ONE
Identification
Section 1.01. Name. The name of the Corporation is “Middle Spring Watershed Association, Inc.”
ARTICLE TWO
Purpose and Powers
Section
2.01. Purpose. The purpose for which the Corporation is formed is the
transaction of any or all lawful business for which non-profit
corporations may be incorporated under the laws of Pennsylvania. The
specific purpose of this corporation shall be to educate the general
public about the importance of protecting and restoring the Branch and
Middle Spring Creek watersheds, and to protect and restore those
watersheds.
Section 2.02. Powers. The Corporation shall
have the same powers as an individual to do all things necessary or
convenient to carry out its business and affairs, subject to any
limitations or restrictions imposed by applicable law or these Articles.
Section
2.03. Purpose. Said Corporation is organized exclusively for
charitable, educational, religious, or scientific purposes, within the
meaning of §501(c)(3) of the Internal Revenue Code (or corresponding
section of any future Federal tax code), including for such purposes,
the making of distributions to organizations that qualify as exempt
organizations under §501(c)(3) of the Internal Revenue Code, or the
corresponding section of any future Federal tax code.
ARTICLE THREE
Registered Office and Registered Agent
Section
3.01. Registered Office and Agent. The name of the registered agent and
the street address of the registered office of the Corporation are as
follows:
____________________________
____________________________ (must be a street address, not a P.O. Box)
____________________________
ARTICLE FOUR
Directors
Section
4.01. Number and Qualification. The number of directors of the
Corporation shall be specified, from time to time, by the Code of
Bylaws, which number may be increased or decreased from time to time by
amendment of the Bylaws. At no time shall there be less than three (3)
Directors for the Corporation.
ARTICLE FIVE
Incorporator
Section 5.01. Name and Address. The name and address of the Incorporator of the Corporation are as follows:
____________________________
____________________________
____________________________
ARTICLE SIX
Code of Bylaws; Indemnification; Amendments of Articles
Section
6.01. Code of Bylaws. The Board of Directors of the Corporation shall
have the power to make, alter, amend, or repeal the Bylaws of the
Corporation, subject to the restriction that a majority vote of the
Directors is necessary to take these actions.
Section
6.02. Indemnification. The Corporation shall indemnify a director or
officer of the Corporation who was wholly successful, on the merits or
otherwise, in the defense of any proceeding to which the director or
officer was a party because the director or officer is or was a
director or officer of the Corporation, against reasonable expenses
incurred by the director or officer in connection with the proceeding.
ARTICLE SEVEN
Limitations on Activities
Section
7.01. Limitations. No part of the net earnings of the corporation shall
inure to the benefit of, or be distributable to, its members, trustees,
officers, or other private persons, except that the corporation shall
be authorized and empowered to pay reasonable compensation for services
rendered and to make payments and distributions in furtherance of the
purposes set forth in Article Two hereof. No substantial part of the
activities of the corporation shall be the carrying on of propaganda,
or otherwise attempting to influence legislation, and the corporation
shall not participate in, or intervene in (including the publishing or
distribution of statements) any political campaign on behalf of, or in
opposition to, any candidate for public office. Notwithstanding any
other provision of these articles, the corporation shall not carry on
any other activities not permitted to be carried on by (a) a
corporation exempt from federal income tax under §501(c)(3) of the
Internal Revenue Code, or the corresponding section of any future
federal tax code, or (b) a corporation, contributions to which are
deductible under §170(c)(2) of the Internal Revenue Code, or the
corresponding section of any future federal tax code.
ARTICLE EIGHT
Dissolution
Section
8.01. Dissolution. Upon the dissolution of the corporation, assets
shall be distributed for one or more exempt purposes within the meaning
of §501(c)(3) of the Internal Revenue Code, or the corresponding
section of any future federal tax code, or shall be distributed to the
federal government, or to a state or local government, for a public
purpose. Any such assets not so disposed of shall be disposed of by a
Court of competent jurisdiction of the county in which the principal
office of the corporation is then located, exclusively for such
purposes or to such organization or organizations, as said Court shall
determine, which are organized and operated exclusively for such
purposes.
ARTICLE NINE
Non-Stock
Section 9.01. Non-Stock Basis. This corporation shall be organized upon a nonstock basis.
ARTICLE TEN
Existence
Section 10.01. This corporation is to have perpetual existence.
Executed this ______Day of ___________, 2006
__________________________________________
___________________________, Incorporator
You
will notice that there are spaces for the listing of an incorporator
and for a registered agent. An incorporator is the individual who signs
and submits the articles of incorporation to the State. Once
incorporated, the incorporator has the power and authority to appoint
the initial Board of Directors for the corporation. The registered
agent is simply someone designated within the State who is willing to
receive a complaint against the corporation if the corporation is sued,
and notices sent by the State to the corporation. Many times, the
incorporator will be the same individual as the registered agent.
Choosing
a Corporate Name: The name of the corporation must include the word
"incorporated", "corporation", "company", or an abbreviation of those
words. The corporate name may also use "association", "fund" or
"syndicate" in its name. Primarily, the concern here is that
individuals dealing with the corporation must understand that they are
dealing with a limited liability organization.
Cost: There is a
$125 fee for incorporating in Pennsylvania as a non-profit corporation.
Time: Usually, it takes about three weeks' time to receive notice that
you've been incorporated.
Other Technical Requirements: Along
with the filing of the articles of incorporation (instructions below),
you must do the following:
1. Submit a "docketing statement"
with your articles. This Form is provided to you by the Department of
State or can be downloaded from the Pennsylvania Department of State's
website at http://www.dos.state.pa.us/corps/. Once on the webpage, look
for "Forms", then scroll all the way to the bottom of the Forms
categories to find the Docketing Statement for a "New Entity.” The
docketing statement covers basic information about the registered
office of the corporation, brief description of the organization, etc.
The Docketing Statement must be filed with the Articles of
Incorporation. Otherwise, your filing will be returned and you'll have
to resubmit. The Articles and Docketing Statement must be submitted,
with the incorporation fee, to "Pennsylvania Department of State,
Corporations Bureau, Room 308, North Office Building, P.O. Box 8722,
Harrisburg, Pennsylvania 17105-8722."
2. After filing your
articles, you must publish notice of the submission of the
incorporation papers in two newspapers of general circulation on the
same day. If your county has a legal newspaper, you must publish in
both the legal newspaper and one newspaper of general circulation on
the same day. This is not as complicated as it initially sounds - what
is required is a three to four line advertisement in the Legal
Classifieds section of the newspaper. It will usually cost between $12
- $25 per paper, depending upon how large the circulation is for each.
The Notice will simply read that "Middle Spring Watershed Association,
Inc. has filed to become a Pennsylvania Non-Profit Corporation under
the Non-Profit Corporation Law of 1988, 15 Pa.C.S.A. §5301." The
newspaper will send you a copy of the ad and an affidavit that proves
it was published. These should be kept with your corporate records, but
does not need to be submitted to the Department of State.
Within
about three weeks' time, you should have a stamped, filed, copy of your
articles of incorporation. Congratulations! You are now a state
recognized, nonprofit corporation.
III. Post-Incorporation: Choosing a Board of Directors, Drafting Bylaws
After
you've received notice that the State has filed your articles of
incorporation, your organization will begin to draft Bylaws.
Bylaws
are the rules under which the corporation will operate. In the Bylaws,
the organization will make crucial decisions, such as how many
directors to have, how often meetings will be held, quorums for
decisionmaking, more specific purposes of the organization, how
amendments will be made to the bylaws, etc. It basically provides a map
of how the corporation will operate during its existence.
Pennsylvania
law requires that the corporation have at least one director on the
Board of Directors if the number is specified in the Bylaws. If not
specified in the Bylaws, the state requires at least three directors on
the Board. Directors must be over 21 years of age (statute uses term of
"full age" - which means capable of contracting), but do not have to be
residents of Pennsylvania.
After incorporation, it is the duty
of the incorporator to hold a meeting, at which the Directors are
chosen, and a set of bylaws are adopted by the Directors.
Below
is a very basic set of bylaws that can be used as a starting point for
your organization. If more complex bylaws are sought by the
corporation, you can contact the Fund at (717) 709-0457. We've made a
conscious decision to keep our sample bylaws relatively short, as we
believe that most organizational bylaws are bloated and overdrafted.
There are, however, several key questions that must be addressed by
your Bylaws. These include:
* Number of Directors and
specifics concerning how often Directors are to meet, length of term of
Directors, and how Directors are chosen;
* Officers of the
corporation. In Pennsylvania, corporations must have a president,
secretary, and treasurer, although state law allows all three offices
to be held by the same person. Other considerations include powers of
the officers, whether they will be compensated for their work, annual
reports that must be filed, etc.;
* Amendments to the bylaws; how amendments are made; what type of vote is required for amendment;
* Indemnity provisions, which require the corporation to cover the
legal costs if a Director is sued for actions taken on behalf of the
corporation.
Below is a model copy of some very basic bylaws that can be used to customize bylaws for the corporation:
ByLaws of Green Research, Inc.
Article I
Offices
Section
1. Principal Office. The principal office of the corporation is located
in ________________County, State of ____________.
Section 2.
Other Offices. The corporation may also have offices at such other
places, within or without its state of incorporation, where it is
qualified to do business, as its business and activities may require,
and as the board of directors may, from time to time, designate.
Article II
Non-Profit Purposes
Section
1. IRC Section 501(c)(3) Purposes. This corporation is organized
exclusively for one or more of the purposes as specified in Section
501(c)(3) of the Internal Revenue Code, including for such purposes,
the making of distributions to organizations that qualify as exempt
organizations under Section 501(c)(3) of the Internal Revenue Code.
Section
2. Specific Objectives and Purposes. The specific objectives and
purposes of this corporation shall be: ________________.
Article III
Directors
Section 1. Number. The corporation shall have ____directors and collectively they shall be known as the Board of Directors.
Section
2. Powers. Subject to the provisions of the laws of this state and any
limitations in the Articles of Incorporation and these Bylaws relating
to action required or permitted to be taken or approved by the members,
if any, of this corporation, the activities and affairs of this
corporation shall be conducted and all corporate powers shall be
exercised by or under the direction of the Board of Directors.
Section
3. Duties. It shall be the duty of the directors to: (a) Perform any
and all duties imposed on them collectively or individually by law, by
the Articles of Incorporation, or by these Bylaws; (b) Appoint and
remove, employ, supervise, and discharge, prescribe the duties and fix
the compensation, if any, of all officers, agents, and employees of the
corporation; (c) Meet at such times and places as required by these
Bylaws.
Section 4. Term of Office. Each director shall hold
office for a period of ______ and until his or her successor is elected
and qualifies.
Section 5. Compensation. Directors shall serve
without compensation except that a reasonable fee may be paid to
directors for attending regular and special meetings of the Board.
Section 6. Regular Meetings. Regular meetings of Directors shall be held on _________ at __________(time).
If
this corporation makes no provision for members, then, at the regular
meeting of directors held on __________, directors shall be elected by
the Board of Directors. Voting for the election of directors shall be
by written ballot. Each director shall cast one vote per candidate, and
may vote for as many candidates as the number of candidates to be
elected to the Board. The candidates receiving the highest number of
votes up to the number of directors to be elected shall be elected to
serve on the Board.
Section 7. Quorum for Meetings. A quorum shall consist of __________ of the members of the Board of Directors.
Section
8. Majority Action as Board Action. Every act or decision done or made
by a majority of the directors present at a meeting duly held at which
a quorum is present is the act of the Board of Directors, unless the
Articles of Incorporation, these Bylaws, or provisions of law require a
greater percentage or different voting rules for approval of a matter
by the board.
Section 9. Non-Liability of Directors. The
directors shall not be personally liable for the debts, liabilities, or
other obligations of the corporation.
Section 10.
Indemnification by Corporation of Directors and Officers. The directors
and officers of the corporation shall be indemnified by the corporation
to the fullest extent permissible under the laws of this state.
Article IV
Officers
Section
1. Designation of Officers. The officers of the corporation shall be a
President, a Vice President, a Secretary, and a Treasurer. The
corporation may also have a Chairperson of the Board, one or more Vice
Presidents, Assistant Secretaries, Assistant Treasurers, and other such
officers with such titles as may be determined from time to time by the
Board of Directors.
Section 2. Qualifications. Any person may serve as officer of this corporation.
Section
3. Election and Term of Office. Officers shall be elected by the Board
of Directors, at any time, and each officer shall hold office until he
or she resigns or is removed.
Section 4. Removal and
Resignation. Any officer may be removed, either with or without cause,
by the Board of Directors, at any time. Any officer may resign at any
time by giving written notice to the Board of Directors or to the
President or Secretary of the corporation.
Section 5. Duties of Officers. (To Be Customized).
President:
Vice President:
Secretary:
Treasurer:
Section
6. Compensation. The salaries of the officers, if any, shall be fixed
from time to time by resolution of the Board of Directors. In all
cases, any salaries received by the officers of this corporation shall
be reasonable and given in return for services actually rendered to or
for the corporation.
Article V
Committees
Section 1.
Committees. The corporation shall have committees as may from time to
time be designated by resolution of the Board of Directors. These
committees may consist of persons who are not also members of the board
and shall act in an advisory capacity to the board.
Section 2.
Meetings and Action of Committees. Meetings and action of committees
shall be governed by and held in accordance with the provisions of
these Bylaws concerning meetings of the Board of Directors.
Article VI
Corporate Records
Section 1. Maintenance of Corporate Records. The corporation shall keep at its principal office:
(a) Minutes of all meetings of directors and committees of the Board;
(b) A conformed copy of the corporation's Articles of Incorporation and Bylaws;
(c) Adequate and correct books and records of its corporate bank account(s);
(d) Copies of all correspondence and filings with the IRS.
Article VII
IRC 501(c)(3) Tax Exemption Provisions
Section
1. Limitation on Activities. No substantial part of the activities of
this corporation shall be the carrying on of propaganda, or otherwise
attempting to influence legislation, and this corporation shall not
participate in, or intervene in, any political campaign on behalf of,
or in opposition to, any candidate for public office.
Notwithstanding
any other provisions of these Bylaws, this corporation shall not carry
on any activities not permitted to be carried on (a) by a corporation
exempt from federal income tax under Section 501(c)(3) of the Internal
Revenue Code, or (b) by a corporation, contributions to which are
deductible under Section 170(c)(2) of the Internal Revenue Code.
Section
2. Prohibition Against Private Inurement. No part of the net earnings
of this corporation shall inure to the benefit of, or be distributable
to, its members, directors or trustees, officers, or other private
persons, except that the corporation shall be authorized and empowered
to pay reasonable compensation for services rendered and to make
payments and distributions in furtherance of the purposes of this
corporation.
Section 3. Distribution of Assets. Upon the
dissolution of this corporation, its assets remaining after payment, or
provision for payment, of all debts and liabilities of this corporation
shall be distributed for one or more exempt purposes within the meaning
of Section 501(c)(3) of the Internal Revenue Code or shall be
distributed to the federal government, or to a state or local
government, for a public purpose. Such distribution shall be made in
accordance with all applicable provisions of the laws of this state.
Article VIII
Amendment of Bylaws
Section
1. Amendment. These bylaws may be altered, amended, or repealed and new
Bylaws adopted by approval of the Board of Directors.
Article IX
Construction and Terms
If
there is any conflict between the provisions of these Bylaws and the
Articles of Incorporation of this corporation, the provisions of the
Articles of Incorporation shall govern.
Should any of the
provisions or portions of these Bylaws be held unenforceable or invalid
for any reason, the remaining provisions and portions of these Bylaws
shall be unaffected by such holding.
All references in these
Bylaws to a section or sections of the Internal Revenue Code shall be
to such sections of the Internal Revenue Code of 1986 as amended from
time to time, or to corresponding provisions of any future federal tax
code.
Adoption of Bylaws
We, the undersigned, are all of
the initial directors or incorporators of this corporation, and we
consent to, and hereby do, adopt the foregoing Bylaws, consisting of
_______preceding pages, as the Bylaws of this corporation.
Dated: _____________
Signatures of initial Board Members or Incorporators
Organizations
are encouraged to customize these Bylaws to their needs as an
organization in a particular locality. Customized Bylaws that
organizations wish to have reviewed by an attorney, should be submitted
to the Fund either by e-mail (tal@pa.net) or by fax - (717) 709-0263.
The Fund can usually give an answer or suggest amendments or changes to
the Bylaws on a forty-eight hour turnaround schedule.
IV. Finalizing the Corporate Structure: Holding an Organizational Board Meeting
To
finalize your nonprofit corporate structure, you must hold a Board of
Directors meeting at which certain preliminary affairs will be voted
upon by the Board and officers elected.
First, you'll need to
have the Board of Directors sign a Consent to Waiver of Notice Form.
This is simply a signed statement by Board members that they waive the
notice required by their Bylaws for the holding of the first Board
meeting.
Here's a sample form:
Waiver of Notice and Consent to Holding of First Meeting of
Board of Directors of the Eastern Cougar Foundation, Inc.
We,
the undersigned, being all the directors of the Eastern Cougar
Foundation, hereby waive notice of the first meeting of the Board of
Directors of the corporation and consent to the holding of said meeting
on Sunday, February 14, 1999; and consent to the transaction of any and
all business by the directors of the meeting; including, without
limitation, the adoption of Bylaws, the election of officers and the
selection of the place where the corporation's bank accounts will be
maintained.
Dated: this _____________Day of February, 1999
Signed,
______________________________
Director
______________________________
Director
_____________________________
Director
Here's
a sample resolution for the first organizational Board meeting.
Additional matters that must be dealt with by the Board at this meeting
should be customized into this sample form:
Minutes of the First Meeting of the Board of Directors for
The Eastern Cougar Foundation, Inc.
The
Board of Directors of the Eastern Cougar Foundation, Inc. held its
first meeting on the ______Day of _______, 1999. The following
directors, constituting a quorum of the full board, were present at the
meeting:
(1) Donald Linzey
(2) Thomas Linzey
(3) Mark Jenkins
No directors were absent.
On
motion and by unanimous vote, Thomas Linzey was elected temporary
Chairperson and then presided over the meeting. Donald Linzey was
elected temporary Secretary of the meeting.
The Chairperson
announced that the meeting was held pursuant to written waiver of
notice signed by each of the directors. Upon a motion duly made,
seconded, and unanimously carried, the waiver was made a part of the
records of the meeting. It now precedes the minutes of this meeting in
the corporate records book.
Articles of Incorporation
The
Chairperson announced that the Articles of Incorporation were filed
with the office of the Secretary of State of West Virginia.
RESOLVED,
that the Secretary of this Corporation is directed to see that a copy
of the Articles of Incorporation, certified by the Secretary of State,
is kept at the corporation's principal office.
Bylaws
There
was then presented to the meeting for adoption a proposed set of Bylaws
of the corporation. The Bylaws were considered and discussed and, on
motion duly made and seconded, it was unanimously
RESOLVED, that the Bylaws presented to this meeting be and hereby are adopted as the Bylaws of the corporation;
RESOLVED,
that the Secretary of this corporation is directed to see that a copy
of the Bylaws is kept at the corporation's principal office.
Election of Officers
The
Chairperson then announced that the next item of business was the
election of officers. Upon motion, the following persons were
unanimously elected to the offices shown after their names:
Todd Lester, President
Chris Bolgiano, Vice President
Jaquetta Lester, Secretary and Treasurer
The
Board of the Directors agreed that the President shall preside at all
meetings as Chairperson of each future meeting and that the Secretary
of the Corporation shall act as Secretary at each future meeting.
Principal Office
After
discussion as to the exact location of the corporation's principal
office for the transaction of business in the county named in the
Bylaws, upon motion duly made and seconded, it was
RESOLVED, that the principal office of this corporation shall be located at: P.O. Box 74, North Springs, West Virginia 24869
Bank Account
Upon motion duly made and seconded, it was
RESOLVED,
that the funds of this corporation shall be deposited with a financial
institution chosen by the President, and the Treasurer is hereby
authorized to establish an account with said bank and to deposit the
funds of this corporation therein.
RESOLVED, that any officer,
employee, or agent of this corporation be and is authorized to endorse
checks, drafts, or other evidence of indebtedness made payable to this
corporation, but only for the purpose of deposit.
RESOLVED, that
all checks, drafts, and other instruments obligating this corporation
to pay money shall be signed on behalf of this corporation by any
Officer of this Corporation.
RESOLVED, that said bank be and
hereby is authorized to honor and pay all checks and drafts of this
corporation signed as provided herein.
RESOLVED, that the
authority hereby conferred shall remain in force until revoked by the
Board of Directors of this corporation and until written notice of such
revocation shall have been received by said bank.
Since there was no further business to come before the meeting, on motion duly made and seconded, the meeting was adjourned.
Dated: this __________Day of _________, 1999
________________________________________
Donald Linzey, Temporary Secretary
Congratulations!
You now have a fully operating corporate entity, and are prepared to
begin the process of submitting a 501(c)(3) application to the Internal
Revenue Service (IRS).
V. Filing for Federal Tax-Exempt, 501(c)(3) Status
Prior
to incorporating in Pennsylvania, you should have contacted the IRS at
1-800-TAX-FORM and requested Form 1023 or downloaded the Form from
http://www.irs.gov.
The IRS estimates that total form
preparation for the 501(c)(3) application will take about twelve (12)
hours. It is our experience that most small, non-profit organizations
can complete the form in about half that time with the aid of guides
such as this one and others that can be purchased.
The Fund has
prepared a boilerplate 501(c)(3) application for small organizations
that wish to go through the process. Below are the corresponding line
numbers to the (c)(3) application and where a non-customized answer is
inappropriate, a small note concerning the material that needs to be
provided.
Routine process on submission of these applications has been as follows:
1. Submission of 501(c)(3) application to the IRS;
2. A reviewing IRS agent will send you a list of questions about the
scope of your activities and any other item that is unclear to the
reviewing agent after your application has been processed;
3. Your corporation will respond to these questions within the time allotted by the IRS;
4. Your application, if approval is given by the IRS, will be processed within 120 days from the date of submission;
5. An IRS determination letter will be sent to your organization. This
letter should be read carefully as it contains additional information
about the type of annual return that must be filed by the organization,
and for which taxes, if any, the corporation will be responsible.
Once
again, a more detailed explanation of certain items within the
501(c)(3) application can be found either in the IRS publications or in
the Non-Profit guide published by Nolo Press, available through Barnes
and Noble and other bookstores. The guide below can be used in
conjunction with a Legal Defense Fund attorney, who will be available
to assist you as you proceed through this process.
The Boilerplate guide to the 501(c)(3) application:
General Instructions:
A
user fee must be paid with determination letter requests submitted to
the IRS. Current costs for user fees are tiered: if your organization
does not expect to raise more than $10,000 during each of its first
four tax years, it will qualify for a $300 filing fee (for applications
postmarked after July 1, 2006). All other corporations must pay a $750
filing fee (for applications postmarked after July 1, 2006).
Part I. Identification of Applicant
Line 1. Name of the Organization
Make sure that the name of the organization that you print is exactly as it appears in your Articles of Incorporation.
Line 2. C/o Name.
Attaching
a name to the Application will ensure that mailings between the
Internal Revenue Service and the corporation are not misplaced by the
post office carrier, who may not realize that the newly formed
corporation receives mail at an individual’s address.
Line 3. Mailing Address.
A street and number should be given here for an address, rather than a Post Office Box.
Line 4. Employer Identification Number.
This
line requests the Employer Identification Number for the corporation.
If you don’t already have an EIN, leave this space blank and the IRS
will assign an Employer Identification Number (EIN) automatically to
the organization. It is recommended not to apply separately for an EIN
as this Application is processing, because the organization may be
assigned two different EIN’s.
Line 5. Month that Annual Accounting Period Ends
For
most small nonprofit organizations, the accounting period ends at the
end of the calendar year, although you can choose any month that fits
the needs of the organization.
Line 6. Primary Contact, phone, and fax.
It
is essential that the primary contact given in the application is
someone intimately involved with the Application process, who
understands that he/she may be contacted by the IRS to answer factual
and historical questions regarding the submitted Application.
Line 7. Representation by Attorney or Accountant.
Most
small nonprofit organizations are not represented by attorneys or
accountants, so the appropriate response is probably “no”.
Line 8. Payment of Assistant.
Most small nonprofit organizations would answer “no”.
Line 9. Organization’s Website and E-mail.
Most
small nonprofit organizations, newly started, probably don’t have a
website for the organization yet. If the organization does have a
website, the Applicant should carefully review the website for content
that might be incompatible with the Application, as the IRS reviewers
will scan the website for any materials or information that contradicts
answers given within the Application.
Line 10. Requirement to File Annual Tax Return.
The
revenue of most small nonprofit organizations probably won’t rise above
the $25,000 annual threshold that triggers the filing of an annual tax
return at the federal level. For that reason, the organization might
want to check “yes”, and then print “less than $25,000” below the boxes.
Line 11. Date of Incorporation.
This
line should be used to enter the date that the Articles of
Incorporation were approved by the State. That date will be evidenced
by either a stamp on the front of the Articles, or a separate letter
that accompanies the Articles.
Line 12. Foreign Country Incorporation.
For most small nonprofit organizations, the answer here will be “no.”
Sign, date, and print name at the bottom in the space provided.
Part II Organizational Structure
Lines 1-4(b). Structure.
Most
small nonprofit organizations filing this Application will be a
corporation, and will be required to attach a copy of the articles of
incorporation with the Application. A small number may be
unincorporated associations with Articles of Association or other
documents that must be attached for filing.
Line 5. Bylaws Adoption.
Most
small nonprofit organizations filing this Application will not have
adopted bylaws as of the time of the filing of the Application. If your
group has, then you must attach a current copy to the Application and
check “yes.”
Part III. Required Provisions in Organizing Document
Lines 1-2(c). Exempt Purposes and Dissolution Purposes.
These
lines require you to inform the IRS about where two key provisions
reside within your Articles of Incorporation or Articles of
Association. The two key provisions deal with the dedication of the
organization to exempt purposes and activities; and a legal dedication
of assets to exempt purposes and activities following dissolution. If
your Articles of Incorporation or Association do not contain these key
provisions, you will be required to amend your Articles with the State
to include those specific provisions, prior to the processing of your
Application.
Part IV. Description of Activities.
Most
small nonprofit organizations may not have begun planned activities.
Thus, this attachment should be used to outline what activities the
organization plans to undertake. Activities should be broken down by
category – e.g. “Watershed Monitoring”, “Public Education”,
“Administration”, etc. – and a rough outline should be given about how
much of the organization’s time will be expended on each of the
activities. Explanation here should be detailed and thorough, and the
IRS may seek additional information from you if the activities
delineated are unclear.
Part V. Compensation for Officers, Directors, Employees, Independent Contractors.
Line 1a. Compensation.
Most
small nonprofit organizations will have Directors and Officers, but
probably not trustees. Most groups of that nature will not pay their
Directors and Officers any compensation for service.
Lines 1b and 1(c). Compensation of Employees and Independent Contractors.
Most small nonprofit organizations will not have employees or independent contracts that are paid in excess of $50,000.
Lines 2a, 2b, and 2c. Business and Family Relationships.
Most
small nonprofit organizations may have family relationships that exist
among the Board of Directors. If there are no business or family
relationships that exist among the Board or Officers of the
corporation, check “no.”
Lines 3a and 3b. Work and Duties.
Most
small nonprofit organizations will not have listed any compensated
independent contractors on the prior part of the Application. Thus, the
box would be checked “no.”
Lines 4a, 4b, 4c, 4d, 4e, 4f, and 4g. Compensation Policies.
Most
small nonprofit organizations will not have listed any compensation for
these identified actors on the prior part of the Application. Thus, the
boxes should all be checked “no.”
Lines 5a, 5b, and 5c. Conflict of Interest.
It
is generally a good idea to have a conflict of interest policy
established either within the bylaws for the corporation or as a
separate resolution. Generally, these resolutions require the recusal
from voting by any Board member, or any decision by any Officer, for a
decision in which that Board member or Officer has a vested financial
interest in the decision. The IRS has sample “conflict of interest”
policies that can be adopted by the Board of Directors of the
organization.
Lines 6a and 6b. Compensation Payments.
Most small nonprofit organizations will answer both of these “no.”
Lines 7a and 7b. Goods and Service Purchasing.
Most small nonprofit organizations will answer both of these “no.”
Lines 8a, 8b, 8c, 8d, 8e, and 8f. Leases, Contracts and Loans.
Most
small nonprofit organizations probably won’t have leases, contracts,
loans, or other agreements that would fall within the purview of this
question.
Lines 9a, 9b, 9c, 9d, 9e, and 9f..Leases, Contracts, and Loans – Interested Organization.
Most
small nonprofit organizations probably won’t have leases, contracts,
loans, or other agreements that would fall within the purview of this
question.
Part VI. Members and Other Benefiting Organizations.
Lines 1a and 1b. Provision of Goods and Services to Individuals and Organizations.
Answers
to these two questions will depend on the nature of the nonprofit
organization submitting the Application. A soup kitchen, for example,
would be providing goods to individuals and perhaps organizations
(churches). A watershed association that offers watershed testing to
individuals living along a stream may also be defined as providing
services to individuals.
Line 2. Limiting Provision of Goods and Services.
Answer this question only if you answered 1a or 1b as “yes.”
Line 3. Benefiting from Provision of Goods and Services.
Most small nonprofit organizations will answer this question as “no.”
Part VII. Your History.
Line 1. Successor.
Most small nonprofit organizations will answer this question as “no.”
Line 2. Time Delay in Submission of Application.
Most
small nonprofit organizations, which generally file their Application
shortly after incorporation and adoption of bylaws, will easily meet
the 27-month guideline established by this question. If the
organization does not, a special schedule needs to be completed, which
will require the divulging of certain financial information to the IRS.
Part VII. Specific Activities
Line 1. Support for Candidates.
Federally
tax-exempt nonprofit organizations are legally prohibited from
supporting or opposing particular candidates for any political office.
Thus, most organizations answer “no” to this question.
Lines 2a and 2b. Lobbying
Federally
tax-exempt nonprofit organizations are allowed to expend monies on
lobbying activities – generally defined as expending monies to support
or oppose a particular piece of legislation. However, the IRS
regulations only allow nonprofit organizations to engage in lobbying if
attempts to influence legislation are not a “substantial” part of the
activities of the organization. Because most groups are uncomfortable
with the IRS defining “substantial” for them, Form 5768 enables an
organization to “elect” to comply with a different threshold. That
threshold enables a group to generally expend up to 20% of the annual
expenditures of the organization on lobbying activities.
Lines 3a, 3b, and 3c. Gaming Activities.
Most
small nonprofit organizations will not be involved in gaming or bingo
activities. If, however, your group has a gaming license (as required
in most States), and wishes to conduct raffles and other gaming
activities, you’ll need to provide the IRS with details under this
section.
Lines 4a, 4b, 4c, 4d and 4e. Fundraising Activities.
Most
small nonprofit organizations will be involved in soliciting for
funding through postal mail, e-mail solicitations, personal
solicitations, website donations, and foundation grants. Under 4b, most
groups will check “no”; under 4c, most groups will check “no”; under
4d, most groups will list only the State in which they actually pursue
activities; and under 4e, most groups will check “no.”
Line 5. Governmental Affiliation.
Most small nonprofit organizations will not be affiliated with governmental units, so they would check “no” to that question.
Lines 6a and 6b. Economic Development Activities.
This
question is aimed at economic development corporations, or those
nonprofit corporations focused on providing affordable housing, or
commercial and industrial development. Those groups may qualify under a
different subsection of section 501(c) of the Internal Revenue Code.
Most groups would check “no” to line 6a.
Lines 7a, 7b, and 7c. Management of Facilities.
Most small nonprofit organizations will answer “no” to lines 7a and 7b, and leave line 7c empty.
Line 8. Joint Ventures
Most
small nonprofit groups will answer this line question “no.” Although
many groups will be engaged with other 501(c)(3) organizations, this
question is focused on ventures with partnerships or other limited
liability corporations that have not qualified as nonprofit
organizations.
Lines 9a, 9b, 9c, and 9d. Childcare Organization
Most
small nonprofit groups form for purposes other than childcare, so
checking “no” on line 9a is appropriate. If part of the organization
deals with childcare activities, then the group must answer the other
line items, which deal with specifics about the operation of those
childcare operations.
Line 10. Intellectual Property.
Most
small nonprofit groups will answer “no” to this line question. If the
nonprofit organization plans to publish pamphlets or books; or pay
authors to write for the organization, there may be some intellectual
property issues generated with the organization that will require
additional information here regarding ownership of the property.
Line 11. Contributions of Real Property and Other Classes of Property.
Most
small nonprofit groups, other than those establishing Conservancies to
protect and preserve openspace, farmland, and forestland, would answer
“no” to this question. If you are establishing a land conservancy,
contributions of conservation easements (or development “rights”) will
trigger a “yes” to this question, which will then require a copy of the
agreement under which conservation easements will be accepted. If the
conservancy has not yet begun operation, it is sufficient to provide a
general outline of how those contributions will be accepted in the
future.
Lines 12a, 12b, 12c, and 12d. Foreign Country Operations
Most small nonprofit groups will answer “no” to line 12a.
Lines 13a, 13b, 13c, 13d, 13e, 13f, and 13g. Grantmaking and Loanmaking to Organizations.
Most
small nonprofit groups, newly formed, will not engaged in making grants
or loans to other organizations, so the answer would be “no” to line
13a. Groups that would make grants and loans will generally do so to
other (c)(3) organizations, an allowable activity under the Internal
Revenue Code (IRC). Lines 13b through 13g would then need to be
completed, to identify the method and process by which monies are
transferred.
Lines 14a, 14b, 14c, 14d, 14e, and 14f. Foreign Organization Grants
Most small nonprofit groups would answer “no” to line 14a.
Line 15. Close Connection to Other Organization.
Most
small nonprofit groups would answer “no” to this line, unless the group
was part of a larger organization prior to incorporating as a separate
entity, and will maintain a financial or operational connection with
the larger organization after incorporating as a separate entity.
Line 16. Cooperative Hospital Service Organization.
Most small nonprofit groups would answer “no” to this line.
Line 17. Cooperative Service Organization – Educational Organization.
Most small nonprofit groups would answer “no” to this line.
Line 18. Charitable Risk Pool
Most small nonprofit groups would answer “no” to this line.
Line 19. Operation of School.
Most small nonprofit groups would answer “no” to this line.
Line 20. Hospital and Medical Care.
Most small nonprofit groups would answer “no” to this line.
Line 21. Low-Income Housing.
Most small nonprofit groups would answer “no” to this line.
Line 22. Provision of Scholarships, Loans, and Grants.
Some
nonprofit groups, including those established as College scholarship
funds, may fall under this category. Establishment of these funds may
make the organization a private foundation, and not an organization
eligible for (c)(3) status as a religious, charitable, or educational
organization.
Part IX. Financial Information
A. Provide a
proposed budget for the current year and the next two years. Most small
nonprofit organizations will have been in existence less than one year
prior to the submission of the Application. The organization will thus
be responsible for calculating the current year’s revenues and
expenditures; and the revenues and expenditures for the next two fiscal
years. For most groups, a “reasonable and good faith” estimate is all
that can be required, as most small groups have no idea what types and
amounts of revenue they’ll be able to raise for the operation of the
organization.
Under the Revenue section:
* list on lines 1 and 2 gifts, grants, and membership fees;
* lines 3-7 are probably not applicable to the small, nonprofit organization;
* line 8 should be used to total lines 1 and 2;
* line 9 should be used for revenue such as ticket sales, book sales,
or other revenue that can be deemed to be “related” to the
organization’s exempt purpose;
* line 10 should be used to total lines 8 and 9;
* lines 11-12 are probably not applicable to the small, nonprofit organization;
* line 13 should be used to total the revenue.
Under the expenses section:
* fill in line 18, 20, 22, and 23, as those lines will be most relevant
to a small, nonprofit organization; line 23 will be used for expenses
other than those used for occupancy, salaries and wages, and
professional fees;
* lines 14-17 and lines 19, 21, and 23 are probably not applicable to the small, nonprofit organization.
B.
Balance Sheet: Most small, nonprofit organizations, newly formed, will
have no liabilities or assets, and will be zero at all points. If not
zero, line 1 will be used under assets to list cash within a bank
account, and lines 17-18 will be used to reflect that cash balance.
Line 19. Substantial Changes in Balance Sheet
Most
small, nonprofit organizations will not have experienced a “year end”
balance sheet, so most likely, this section will be completed shortly
before submission of the Application. Thus, line 19 will generally be
answered “no.”
Part X. Public Charity Status
Lines 1a, 1b, 2, 3, and 4. Private Foundation Status.
Most
small, nonprofit organizations will qualify as a publicly supported
(c)(3) organization, rather than as a private foundation. Private
foundations generally operate with a small handful of large donors, and
they are required to operate under more stringent rules governing
donations, expenditures, and other activities associated with the
organization. Most groups will answer “no” to line 1a.
Lines 5a, 5b, 5c, 5d, 5e, 5f, 5g, 5h, and 5i. Public Charity Status
Most
small, nonprofit organizations will qualify under 5(g) or 5(h). The
main difference between organizations described in 5(g) and 5(h) is
that 5(h) organizations expect to receive less than one-third from
investment income, and more than one-third from contributions,
membership fees, and gross receipts from related, exempt activities.
Most small nonprofit organizations elect 5(g) status, as it relies on
contributions from other publicly supported organizations, from
government grants, or from donations made by the general public.
Lines 6a, and 6b. Definitive and Advance Rulings
Most
small, nonprofit organizations, newly formed, request an “advance”
ruling. In essence, if the IRS approves the Application, the
organization will be treated as a (c)(3) organization for five years,
and after that five years, the organization must prove to the IRS that
it is a publicly supported organization. Groups that have completed a
tax year of at least eight full months can also request a “definitive”
ruling. For that ruling to be made, the organization must provide the
IRS with certain financial information to enable the agency to
determine whether you have met the requirement of public support.
Generally, because small groups have not completed such a tax year, and
because they usually won’t have the requisite financial information to
provide, they elect to pursue an “advance” ruling, which requires them
to sign the Consent form provided in this section.
Line 7. Unusual Grants.
Most
small, nonprofit organizations will answer “no” to this line question.
“Unusual Grants” is a phrase used to refer to large grants not usually
received by the organization. The reason to identify such grants as
“unusual” is to eliminate them from the equation for determining
whether the organization is “publicly supported.” Because most small
nonprofit groups will not yet have begun fundraising in earnest by the
time of the submission of the Application, they generally will not have
received any grants that they wish to deem “unusual.”
Part XI. User Fee Information
User
fees will increase for Applications postmarked after July 1, 2006, to
$300 (for those groups under the annual $10,000 threshold) and to $750
(for those groups over the annual $10,000 threshold). Most small
nonprofit groups will be eligible for the lower fee, and will check the
correct box, accordingly, as well as signing and dating this section.
Congratulations!
Now you're ready to mail a package to the appropriate IRS processing
office. When you've completed Form 1023 (the 501(c)(3) application),
place it into an envelope with the following documents.
* One Copy of your Articles of Incorporation, evidencing approval by the State;
* One Copy of your Bylaws;
* Any Attachments included with your Application (which should include
the name of the organization and it’s EIN (if already assigned), and
the section to which the Attachment refers; and
* A Check for the appropriate amount, made payable to “United States Treasury.”
Send the envelope by certified mail to this address:
Internal Revenue Service
P.O. Box 192
Covington, Kentucky 41012-0192
We
advise that you make photocopies of all materials that you send to the
IRS, and also that you send the package by certified mail.
VI. Annual Filing Requirements with the State and Federal Government
After
submission of the materials above and reception of 501(c)(3) nonprofit
status, the corporation will be officially exempt from state and
federal taxation on income of the corporation that relates to its
exempt purpose. Unrelated income, however, may still be taxable. For
example, if a public research organization receives non-profit status,
and then holds a booksale to support its purposes, the booksale
proceeds may be considered unrelated income and may be taxable.
Corporations must be careful about these streams of income.
If
your corporation raises or expends over $25,000 in a calendar year, you
must file a Form 990 (or Form 990-EZ) with the IRS no later than April
of the subsequent year. If you exceed this $25,000 threshold, you are
obligated not only to file an annual return with the IRS, but you will
be subjected to the jurisdiction of a Pennsylvania agency known as the
"Bureau on Charitable Organizations" (BCO). BCO rules require you to
register with the agency within thirty (30) days after crossing the
$25,000 threshold. For additional information on complying with the BCO
or IRS requirements, contact staff counsel at the Legal Defense Fund.
Other States may have similar agencies.
So, the good news is
that if your organization does not raise over $25,000 in a calendar
year, you are under no obligation to file any annual return with any
state or federal body. You should maintain your financial records, of
course, for other reasons; but an annual return need not be filed with
either the BCO or the federal government.
If you raise or spend
over the $25,000 threshold, you'll be obligated to file a Form 990 with
the federal government for that year of operations and you'll also have
to file a separate form (with filing fee) with the BCO, which is
located in Harrisburg. The BCO requires you to file a registration form
with the agency within thirty (30) days after you exceed the $25,000
limitation.
Emphasis: The BCO has a reputation for a hardline
stance towards Pennsylvania non-profits that attempt to avoid these
requirements. It is urged that you contact the BCO to receive their
materials so that you fully understand what is required from your
corporation. The BCO can be reached at either (717) 783-1720 or at
(800) 732-0999. The forms are fairly simple to fill out, but the BCO
also requires a fee for registration and a copy of your articles,
bylaws, and the most recently filed Form 990 annual federal return.
In
addition, if you pay employees of the corporation, you'll still be
responsible for withholding employment taxes. If you intend on paying
employees, it is advised to find a low-cost or pro bono accountant that
can do this on the cheap. The other option is simply to pay an
individual as an "independent contractor" to do projects for the
corporation that are of limited duration. This avoids the payment of
employment taxes, but this option can only be used if the individuals
are not "employees" as defined by the IRS. To navigate these nuances,
it is suggested that a low-cost attorney or accountant may be useful.
Finally,
the use of an accounting program such as Quicken can come in useful for
keeping expenses and donations to the corporation in one file that can
easily be reviewed when it comes time to file an annual report.
VII. Maintaining Charitable Status as a 501(c)(3)
When
you receive your IRS determination letter, you will notice that the IRS
will be treating you as a 501(c)(3) for a certain period of time
(usually five years if you applied for “advance” ruling status), at
which time the IRS will review your financial information to determine
whether you are receiving enough "public" support to continue to
qualify as a 501(c)(3).
Here, it is suggested early on, that the
corporation develop a series of small donors who can annually make
small donations to the corporation. Small donations from a larger
number of individuals from the general public will probably be enough
to continue to qualify the organization with the federal government as
a 501(c)(3).
VIII. Hooking Into Pennsylvania's Non-Profit Environmental Network
Throughout
this process, it is suggested that your corporation work closely with
the various entities that have been established as a support network in
Pennsylvania. These organizations include the Pennsylvania
Environmental Network (PEN), and the Community Environmental Legal
Defense Fund (CELDF), which authored this handbook.
More
importantly, your corporation may want to join the Pennsylvania
Environmental Network (PEN), which consists of a coalition of
independently operating environmental organizations in the state. These
organizations can provide your corporation with a base of seasoned
activists and a foundational support of entities willing to provide
technical and legal information either free of charge or at reduced fee
costs.
Community Environmental Legal Defense Fund (CELDF)
PO Box 360
Mercersburg, Pennsylvania 17236
(717) 498-0054
tal@pa.net
www.celdf.org
In short, welcome to the Pennsylvania grassroots network as a non-profit organization!
